Non-compete clauses: timing is everything
16 June 2017 #Contracts
In Egon Zehnder Ltd v Mary Caroline Tilman, the High Court upheld a restrictive covenant finding that it went no further than reasonably necessary in protecting the employer’s legitimate business interests. The court explained that the the reasonableness of a non-compete clause should be assessed at the time a contract is entered into but should take into account the parties’ expectations of future promotions.
Although Ms Tilman was initially hired by Egon Zehnder (EZ) as a consultant in its financial group, she was expected to quickly rise through the ranks and was eventually promoted to the position of “Co-Global Head of Financial Services Practice Group.” When Ms Tilman resigned and informed the company that she was moving to a competitor, EZ claimed that she was in breach of her six-month non-compete clause within her original employment contract.
The High Court upheld the covenant, although not appropriate for the consultant role when Ms Tilman joined the company, the covenant reflected EZ’s expectation that Ms Tilman would be promoted. Ms Tilman’s level of engagement with clients and involvement in strategic matters meant that the non-compete restriction was justified.
Whilst this may be a welcome decision for employers worried about the enforceability of covenants, it also acts a reminder to tailor employment contracts to the individual, particularly following promotions.
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